The Service Payoff

By Michael J. Major

The Service Payoff

When Revenues Fell, Paragon Drywall Kept Its Service Up-- and the Revenues Came Back

What do you do when you lose 40 percent of your business revenues? The conventional wisdom is that you'd better make some changes fast or you'll go under. In most cases, the conventional wisdom may be the best. But not always.

When the bottom fell out of his market, Adolf Gust, president of Paragon Drywall Contractors, Ltd., Ontario, Canada, simply went along doing what he had always done--center on his high profile service department. His conviction paid off. The lost customers returned.

Gust, unlike many contractors, did not grow up in the field. Instead, he came to it from the outside, as an accountant. He is a certified general accountant, the equivalent of a certified public accountant in the United States. He worked in a public accounting practice for 10 years before going to work for a wall and ceiling contractor from 1968

to 1973. In April 1973, he started Paragon with Helmet Kedan, who retired in 1989.

The initial focus was on single dwelling, multiple dwelling and highrise apartments.

"At one time we were almost totally residential," Gust says. "But due to the fierce competition in all aspects of the business, we extended the scope of our business in the early 1980s to include commercial and industrial. Today the ratio is 80 percent residential to 20 percent commercial."

The business grew steadily until 1989. That's when the bottom fell out of his Toronto market area. There was a severe drop in housing starts, which pushed prices and margins way down. Since Ontario is unionized by the United Brotherhood of Carpenters and United Brotherhood of Painters, wages stayed up for the union shops but cre-

ated opportunities for non-union fringe contractors. They came in with low prices and this, combined with the overall overall drop in building starts, resulted in the 40 percent loss in business for Paragon.

"Even those of us with a financial background and training misjudged certain things," Gust acknowledges. "I thought the recession would last 18 or 20 months, but it was not until 1995 that we began climbing out of it. Certain areas of Ontario were hit very hard."

Several contractors and developers, including some of the very largest ones, went out of business.

"Through these tough times, Paragon was very well supported by the majority of our suppliers and manufacturers because of the credibility we had built up with them in the past," Gust says. "They saw fit to support us even dur-

51 Official Publication of AWCI

ing the lean years, and this has to be recognized."

Service Is Highlighted

What really sustained Gust, however, was his commitment to service. Most contractors offer service to varying degrees, but Gust was the first to establish a service department in his market. Although he had always believed in service, about 12 years ago he noted that a general contractor had customer service highlighted on his trucks.

"We copied that," Gust says, "and from then on began to actively promote our service."

Gust explains that having a service department can easily be perceived as a drain on the businesses' main intent on making money So, service can easily be regarded as a pain in the neck and not regarded as a priority On the other hand, a service department that has no mandate other than to provide service, will see pleasing the client as its purpose, as opposed to only a necessary evil or a drain on the bottom line.

"One of our main policies is to look after the builder," Gust says. "As I continually tell my people, if the builder looks good, we'll look good to the builder."

In Canada, Gust explains that a reputation for good service rests not only on word of mouth. There is a warranty for one or two years in effect mandated by the Housing Authority This means that all builders are graded by the public and the Housing Authority, a provincial government institution that provides a real objective measure of service. Every home builder must be registered with this authority and is in turn monitored by same. Therefore, making the builder look good has a greater dimension than it might have in the United States.

For Gust, the service extends not only to correcting his own mistakes, which

52 Construction Dimensions r April 1998

he keeps to a minimum, but also for volunteering to help out in the gray areas where it's difficult to determine who exactly is

Paragon Drywall doesn't just correct its own mistakes; the company also volunteers to help out in the gray areas of other trades' responsibilities.

done by others, who often also haven't provided adequate service."

Since people often

responsible. This usually

become fixated by price,

has to do with shrinkage, settlement cracks and sometimes plumbing leaks. This is due to the thawing and freezing conditions that result in a lot of movement in the ground lumber, due to a climate colder than that usually experienced by the United States, with the exception of the upper middle west states.

"Even though we lost work in the past due to price, we eventually regained all

those customers because of the aftersales service we provide to builders and customers," Gust says. "Over a period of time, people started to realize that the additional problems and aggravations they were experiencing were costing them more than what they would be paying us for our service. They always like to deal with our personnel and never have trouble getting work done promptly and properly. We're often called by builders to repair work

especially during hard times, the change wasn't immediate. In fact, during the hard times, Gust and his management staff continually visited builders to build a close relationship with them and to get their message across. Gradually, the message sunk in and Gust recovered his former business.

The story doesn't end here, of course, for the margins and market are still extremely tight due to increased costs

54 Construction Dimensions r April 1998

of labor and material. Moreover, the message has also gotten through to a number of Gust's competitors, who have also picked up on the idea of having a service department. Gust shrugs this off as just a part of being in business and is on the other side of the

-fence now in terms of revenues and profits.

Service and Beyond

Gust keeps moving forward with his service concepts.

"We sell ourselves in problematic areas," Gust says, by pointing out where clients might do something a little differently or suggesting options for changing a spec to save money. "Even when we're involved in the bidding process, we'll price an alternate and do a detailed drawing which can be run by their engineer. Sometimes they'll say forget the bid and we'll negotiate the job. Once we get our foot in the door, we use it as an opportunity to sell ourselves." The result, Gust reports that he achieves an almost 50/50 percent ratio between bids and negotiated work in a very competitive market.

One of Gust's most interesting and challenging jobs was the Imax Theater in Sudbury, part of the Science North science complex. This $300,000 drywall and acoustical treatment job involved intensive work with sound engineers on a continuous 38-foot-high wall with heavy gauge metal studs and special sound resonators.

"The wall had to pass rigorous tests," Gust says. "You couldn't `leave a coffee cup or loose screw behind the wall because, once the sound came on, it would reverberate."

Central Park Phase II was a combination of high-rise residential, an office tower and retail space, with a contract for $1.8 million and was completed in nine months. Paragon did a number regional offices for the Menkes Development organization, including those for Bombardier and Compugen, each at about $150,000.

Gust's accounting background gives him an edge in the financial aspects of the business.

continued on page 57

56 Construction Dimensions r April 1998

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